Value

The End of Healthcare Symbiosis Might Just Kill the Host (and End the Career of the Hospital CEO)

January 21, 2013

The move by hospitals to “strengthen” hospital-based departments, and the hospital’s own finances, by outsourcing to so-called national groups and “contract management companies” might just result in the destruction of the hospital. The chances are even higher that it will end the careers of many hospital executives.

Over the last 30 to 40 years, both hospital-based physician groups and hospitals have flourished due to a kind of symbiosis.

The hospitals needed a stable source of particular medical expertise and the assurance that those specialists would contract with health plans. The physicians, through the formation of groups to contract with the hospitals, gained economic clout, exclusivity, and a degree of stability.

Inherent in that relationship was the fact that the physician members of the contracted groups developed long and deep ties to the community, both the community in general and the medical staff community at the particular hospital.

Certainly, these groups were run as businesses attempting to maximize their profitability, but it was an aim of maximizing profitability over the long run, not a quick killing of this year and next, over the two-year term of their contract, and then adiós sucker.

As a result, local groups developed a very keen interest in working with administrators and their colleagues in other medical staff departments to not only deliver the services required, but to do so in a way that supports the peculiar needs of that facility. Times may be tough this year, but by devoting resources to support a new service line, or by shrinking to end an unprofitable one, the relationship, in the long run, remains mutually beneficial and successful.

National groups and, even more so, contract management companies, don’t have the same view of, or need for, that type of symbiotic relationship with the hospital. Yes, they want profitable relationships to last, but their profit horizon is not the same as that of a local group.

Think about this in terms of restaurants. A local group is equivalent to a family owned burger stand. The family members would go to great lengths to keep their economic engine alive through hard times. It’s their sole source of revenue. They have their reputation in the community to preserve. They have real relationships with their customers. On the other hand, a contract management company is equivalent to the owner of a chain of fast food joints. If location number 78 is having difficulty, sure they’ll try to save it. But if it becomes more trouble than it’s worth, they’ll simply shutter it.

This difference in motivation holds true at the physician level as well. Physicians with roots in the community, physicians who see a group as their career, with ownership a possibility or a promise, have a reason to remain, good times or bad. Sure, there’s no absolute guarantee that anyone will stay. But compare this with physicians working for the local branch of a national contract management firm, paid, essentially, as itinerant workers. How likely is it that they will stay long term? How likely is it that the contract holder will replace them when someone else can be found to do their job for slightly less? How likely is it that high quality physicians will come to, or remain with, the management firm, and while they’re there at community hospital number 11 of their career, how much will they care about establishing a relationship with the hospital and its community?

Which group, the local group or the masters of “store number 78,” is more likely to tie its success to that of the hospital?

In the short run, hospital CEOs may be seen as geniuses, and paid bonuses—the real point, right?—as a result of their seeming “costs savings.”

On the other hand, five years down the road, when the national group has left because there is no profit working at that facility, when the staff in the anesthesia or radiology or, coming soon, cardiac surgery, department is as stable as a pool of itinerant fieldworkers, what will the impact be on the hospital? What will the impact be on the CEO? . . .  That is, unless he or she saved their bonuses and left in time to enjoy their skewed memories of success, sipping cocktails on a sandy beach while the hospital board attempts to put the pieces back together again.

Comment or contact me if you’d like to discuss this post.

Mark F. Weiss

www.weisspc.com

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